In your Sunday column "Crude Awakening," Professor Krugman, you
pondered the rise in the price of crude oil and wondered if it mattered, in
this new high-tech world: "So even though crude oil prices have surged
above $30 a barrel, even though the U.S. energy secretaryís pleas to OPEC to
loosen up are starting to sound a bit desperate, itís hard to get worked up
about the situation. Surely we cannot really be at risk of replaying the 70's
energy crisis, which was caused by ... actually, what did cause the
energy crisis? ... Incredibly, there is no widely accepted answer; nor is
there even a live debate about the issue. In fact, I havenít been able to
find a single economics research paper published after 1991 that even tries to
make sense of the era of high oil prices. And if we donít know why it
happened then, how can we be sure that it wonít happen now?"

You may be surprised to hear this, Professor, but the column was kind of of
encouraging -- in that you actually admitted you did not know something as
important to the world as the "energy crisis" of the early 1970s. If
you donít know why that crisis occurred, maybe you donít know why it
ended, huh? Maybe you donít know why interest rates soared in 1980 under
President Carter and why they came down in the Reagan years? We donít really
expect Nobel Prizewinners to explain teeny moves up or down in prices or
values. But if a world class economist -- which is what you say you are --
cannot explain one of the most cataclysmic economic events of the century in
his analytical framework, maybe he doesnít know much about anything about
which he writes in the worldís greatest newspaper. Maybe he will be
listening to arguments about why these things happened that he previously
ignored completely. Is this right?

After all, what is an academic economist good for? Not having formally studied
economics, I always thought professional economists were supposed to predict
the future. That is, an economist will say: If you do X, Y will happen.
If you do A, B will follow. At the most recent gathering of pros at the
American Economic Association convention, it was a surprise to learn from
AEAís president, Robert Eisner of Northwestern, that it is not the job of
economists to predict the future, but to explain the past. In other words,
they should be good at telling their clients why they lost their shirts
betting on a lower oil price just before it soared. Now you tell us,
Professor, that you canít explain why oil is at $30 today, or why it went
from $3 to $12 in the early 1970s. You canít predict the future and you
canít explain the past!!!

Please. Listen here. As you are still a world-class Ph.D. economist under 40
years of age, you at least have a small excuse in not knowing why your daddy
sat in long lines at gas stations in 1974, when you were in knickers and late
for Little League. At the time, I was already a grown-up, writing editorials
for the WSJournal and trying to figure out the oil crisis. What I did
was look around for an economist who had actually predicted an oil
crisis, and when I found one, asked him to tell me how he did it. The
fellowís name was Bob Mundell, a Canadian with a Ph.D. from M.I.T., who made
a speech in Geneva in January 1972 in which he said, flat out: "We will
soon see a dramatic rise in the price of oil, and thence all other
commodities." You see, Professor, if all economists had made this
prediction, you would not now be scratching your head. Because only one guy
did it meant that all other economists missed the boat and had a vested
interest in getting all their clients in business, politics and the news
media to pay no attention to Mundell.

Well, I paid attention. Just as you take your new job as NYT columnist
seriously, by admitting to your readers you donít know something important,
but by gosh, you are going to find out, I admitted my own ignorance and let
Mundell and one of his students, a chubby fellow named Art Laffer, explain it
to me. And thatís how "supply-side economics" came to be, a phrase
I coined to encompass an up-to-date version of what was once called classical
economics -- the economics of production. I even wrote a book about it in
1978, The Way the World Works, which I understand you refuse to read
because it was not written by a Ph.D. economist. Alas, if you will only read
Ph.D. economists, you can never find the right answers, because, as you
say, you have scoured the research papers and there is only silence on this
topic.

Now Iím not going to write you the answers here, because you are probably
refusing to read even this because it has not been certified by the AEA. You
can always sneak a look at the top of my home page and read my "Short
History of the 20th century." You also can register as a student in
Supply Side University, of course with an alias to spare you the embarrassment
of learning at my knee. With a little effort, you will understand why it was
that Mundell observed the price of yellow gold soaring, and he knew the price
of black gold would not be far behind. When the light bulb goes on with the
oil crisis, you can then put yourself to figuring out why the stock market
crashed in 1929. You can do it yourself, as no research papers exist on that
topic either, as all economist know it was a bubble. Or, you could read
Chapter Seven of my book. You can order it at the top of this home page,
Professor. Just click on it. You can give us an assumed name, to spare you the
embarrassment. We will even send it in a plain brown envelope.